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Consumers expect more from retailers than ever before – it’s time for retail businesses to maximize technology to evolve for the future.
In brief
- Retailers must prepare for a hybrid future, with consumers seeking the best of both worlds between physical and online shopping.
- Adopting emerging technologies will help them transform their value propositions in line with the three I’s: invisibility, indispensability and intimacy.
- A bold digital transformation strategy will help ensure success for retailers, but it requires greater collaboration across technology ecosystems.
The experience of the pandemic has reshaped consumers’ expectations. They now want to be in control — they can choose how they shop, where they spend their time and who they trust. Their expectations of retailers have risen, but retailers’ ability to influence them has declined.
These shifts are intensifying the need for the retailer to occupy a different role in the life of the shopper. Many are already seeking fresh ways to engage consumers using new channels, storytelling, and innovative services. But to win in the post-pandemic consumer landscape, retailers will need to go beyond traditional customer-centricity and tap into new value by delivering the right mix of invisibility, indispensability and intimacy. Properly implemented and integrated technology provides retailers with the capabilities needed to deliver on, what we have defined as, the three I’s of the retail value proposition:
The right technology will be key to unlocking the full power of these value propositions — past approaches to technology implementation will no longer be enough. The pace and scale of the transformation that’s now required — and the role that will be played by emerging technologies, where skills are at a premium — demand new approaches to solution and talent development. Success will require retailers to collaborate closely across their technology ecosystems, a significant break from the more transactional relationships of the past.
Navigating disruption to capitalize on consumer trends
Retailers are not new to disruption — they’ve faced the entry of technology-powered online competitors, start-ups and marketplaces for years. But many have not been at the leading edge and have responded to, rather than anticipated these threats. As retailers look to reset and move forward, they must build on efficiency and operational excellence to deliver growth by truly reflecting what consumers want. Technology can help retailers do this, but consumers have already shifted their expectations further ahead — creating a gap that retailers must close.
This imperative comes against a backdrop where technology is blurring industry boundaries and opening new possibilities in every aspect of retail — across marketing, procurement, sales, planning, logistics and cross-functional support, such as finance, HR and real estate. At the same time, COVID-19 has accelerated a lifestyle shift to online platforms. There is now a greater acceptance of digital alternatives — whether it be to shop, work, get fit, or as a source of entertainment.
Nevertheless, predictions of the death of the physical store have failed to come true. The EY Future Consumer Index indicates that consumers want the best of both worlds:
- Fifty-five percent of people actively decide not to shop online because they feel it gives them less control of the purchase.
- Forty-five percent are mixing online and in-store for grocery shopping.
- Fifty-eight percent say they like to shop in bigger stores for more choice, consolidating multiple shopping trips into one weekly shop.
This last point opposes an underlying trend toward more convenient formats, as consumers stay home more and shop on the go less.
The value of technology must be relevant to a distinct retail strategy
Physical and digital retailing will not be an either-or choice. Given this, it’s hardly surprising that the EY Reimagining Industry Futures 2022 study confirms how external factors have spurred the pace of digital transformation in retail. Seventy-one percent of retailers say their organization is more interested than before in 5G and internet of things (IoT) use cases that can improve supply chain visibility and management. Seventy-five percent say the COVID-19 pandemic has accelerated their digital transformation plans.
Methodology
Reimagining Industry Futures is an online survey conducted for EY of over 1,000 enterprises in November 2021. The survey included a specific boost of retail respondents, taking the sample size for retail to 224. This cut of the survey is designed to explore retailer behaviors, attitudes and intentions toward emerging technologies, with a focus on the internet of things (IoT), 5G-based IoT and industry ecosystems.
How retailers are prioritizing digital transformation
As retailers look to meet customer demands in innovative ways by harnessing emerging technologies, we asked them what the most significant 5G-based IoT application scenarios will be for their organization. Their responses show their top priorities include ensuring the efficient operation of the business by placing supply chain orchestration, and critical infrastructure control as their top priorities. Their next priorities clearly address the three I’s with predictive or real-time operations, and personalized products and services being of equal importance. These are followed by customer insights, and systems and process optimization — all highlighting a desire to deliver a combination of invisibility, indispensability and intimacy.
Retail investment in emerging technologies is growing as a proportion of the overall information technology (IT) spend. The current focus is clearly on creating a data-driven organization by prioritizing analytics and artificial intelligence (AI) as well as robotics and automation. Investment is also currently being made in IoT and edge computing. However, it will progress in the coming years to 5G and quantum computing. Investment intentions around AR or VR and blockchain remain relatively muted. This could become a challenge for retailers in the future if left unchecked, as digital currencies and the metaverse rise in prominence.
Implementing new business models that facilitate emerging technologies
The data shows two clear actions that retailers will need to explore going forward to facilitate the implementation of a successful digital transformation strategy:
1. 5G will be key — but there are challenges associated with its adoption
A crucial consideration for retailers is that emerging technologies cannot be considered in isolation. They require the right infrastructure and integration to run smoothly and consistently. With its low latency, high speed and bandwidth, 5G is ideally suited to act as the “glue” for emerging technologies in retail infrastructure. However, many retailers see significant challenges along the way. Seventy-seven percent believe that successful 5G-IoT implementation will require an overhaul of their organization’s operating model over the next five years. That is a major undertaking.
2. Closer collaboration with technology suppliers is the goal — but will require a shift of mindset
While retailers are looking to speed up their digitalization programs and develop strategies for emerging technologies, they have expressed a greater desire for collaboration across ecosystems. Sixty-three percent of the retail respondents say that the pandemic has driven a closer collaboration between their organization and technology providers.
But, while most retailers see the need for closer collaboration, many are not following through to realize the opportunity. Sixty-nine percent say that their current interactions with 5G vendors are still largely tactical and transactional. This may be because it requires a significant shift in the mindset of retailers, which have historically been accustomed to developing systems in-house and training their own people. However, if they are to get to where they need to be at the required pace, it is simply not possible to recruit or train the right talent fast enough. They will have to find alternative ways to get the skills they need — and collaboration is the only feasible option.
Harnessing the three I’s to realize the power of retail technology
We are heading toward a hybrid future where consumers no longer care about the channel they use. They just want to buy the products and services they want with a consistency of experience, wherever they shop.
This has given retailers a golden opportunity to transform how they engage with their customers. Many are positioning themselves to realize future opportunities by putting in place the emerging technologies that they need to evolve their future value propositions. However, progress is uneven and the window of opportunity may not stay open for long.
To ensure that their technology is future fit, we have identified three key imperatives for retailers to consider:
- Ensure that the right infrastructure is in place to support the technologies you apply. Putting new and emerging technologies as bolt-ons to legacy infrastructure will only slow things down and make experiences worse. Too many retailers struggle with integrating new technologies with old systems.
- Work closely with technology partners to ensure you stay relevant. Software and technology will need to be constantly updated to keep up with new development. Relationships between retailers and their technology partners must shift from transactional installments to service-led support, to enable their systems to outpace obsolescence.
- Consider all technologies while planning for the future. Many respondents to our survey did not see blockchain and AR or VR as relevant to their business. But interest in these areas is accelerating rapidly as digital currencies, non-fungible tokens and the metaverse create new opportunities for value creation.
To realize the full power of the three I’s to engage, win and retain consumers, retailers must now identify and invest in the right use cases and business models. It’s time for bold strategic choices and actions to put them into effect. This is the vital next stage of the journey and one that must be addressed quickly.
Summary
Retailers have a window of opportunity to reinvent their customer experience to meet consumer expectations. Technology is a vital tool that will enable businesses to enhance engagement, through both online and physical channels. The transition will require a shift toward a more fully integrated technology ecosystem that can evolve future value propositions. Retailers are already recognizing the importance of technology to their operations, but fully seizing the opportunity will require a distinct retail strategy that incorporates greater partnership collaboration and investment in emerging tech.
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